Redefining Planning Goals: Focus on Retirement

Q and A with Ramzi Nuwayhid, Wealth Management Advisor for Merrill Lynch Global Wealth Management, Boston, MA

Have the financial planning goals of investors changed during this uncertain economic climate?

Many investors’ assets have been subject to the economic storm for the past 12-18 months, and some families’ portfolios have been impacted. Before the crisis, retirees, pre-retirees and younger families based their financial well-being on a pre-determined nest egg that, until the recent economic downturn, seemed suitable in the pursuit of their personal goals and objectives. However, in the advent of today’s economy, most individuals’ nest eggs have diminished in value and financial planning goals must change accordingly.

Whether investors are saving for retirement, planning for their child’s college tuition, or considering their allocation towards charitable giving, their portfolio value has decidedly decreased by at least 15% to 35%, depending on the makeup of their portfolio and the protective steps their financial advisors made on their behalf. A drop of 35% in a portfolio needs a rebound of over 53.8% to get back to where it was – a daunting task for those already in retirement. But, the rebuilding process needs to begin quickly. Increasingly, investors need to consider how to save for the future, as their retirement outlook may have changed as a consequence of the market.

If retirement is an important area of focus for investors today, how can individuals begin to plan for the future in this economy?

When thinking about retirement, five factors come to mind that are essential to helping investors understand what kind of plan they should employ as a viable option for one’s family or an individual.

First, individuals should know that the amount of current assets held – retirement accounts, brokerage accounts, cash, and other securities – is an important feature in one’s portfolio that may need to be evaluated. Next, one should be watchful of their suitable asset allocation in terms of risk and income generation. Yet another factor to consider when planning for the golden years is one’s conservative life expectancy. Additionally one should, make sure to have enough allocated towards their pre-retirement savings. And finally, an investor’s annual retirement spending rounds out retirement considerations for investors.

Over the last year I’m sure that at least two of those factors have changed for retirees, which underscores the importance of reviewing one’s financial plan to make sure that it reflects the realities of your plans and market activity. Retirees depend on their portfolios to supplement the income they generate through social security and/or pensions so it is even more important to settle your finances before reaching retirement age. Protecting the nest egg that has been built over a lifetime is critical, but growing it is just as important so that inflation and other bumps in the road do not end the journey prematurely.

What should investors consider when revising their current retirement plan?

If your portfolio has taken a hit, an ultra conservative approach may not be sufficient to achieve your retirement goals anymore. Conversely, you may be taking on more risk than you need to, and ratcheting back that exposure may protect you from future losses. Consider a detailed cash flow analysis which will help you to break down your spending habits to illustrate the effects your current spending has on your now lighter portfolio.

Not every plan needs to be changed or updated, but many of them do. Make sure you are prepared to weather the market downturns and inflation that your portfolio will inevitably face and enjoy retirement, not worry about it.

Ramzi Nuwayhid; Merrill Lynch Global Wealth Management; ramzi_nuwayhid@ml.com